Passbook: Apple's Answer to the Mobile Payment Question

Apple has turned its back on a mobile payment technology used by its rivals in favor of an app-centric scheme called Passbook.

The technology, NFC (Near Field Communications), was missing in the new iPhone 5 unwrapped Wednesday at a press event by Apple. Instead, Apple will be putting its support behind Passbook, which will be part of the next version of its mobile operating system, iOS 6, expected to be released later this month.

Unlike NFC, a combination hardware and software solution for mobile payments and sharing, Passbook is a software-only approach that uses components already in the phone, namely the camera and display, to function.

Since Apple revealed in June that Passbook would be part of iOS 6, a number of businesses have signed on for the program including three major airlines (United, Delta and American), Ticketmaster, Sherwood Hotels & Resorts, Starbucks, movie ticket purveyor Fandango and Merchant Warehouse, a provider of merchant account services.

Not A Wallet

Apple sees Passbook as a place on the iPhone where an assortment of payment items can be stored -- boarding passes for flights, retail coupons, loyalty cards and such. An iPhone can be used to scan a flight pass at check-in time, get into a movie or redeem a coupon.

What's more, the app uses the location features of the phone to display pertinent documents on the handset's lock screen so no swiping is needed to use them. When you walk into a store to redeem a gift coupon, for instance, Passbook knows where you are and will display it when you turn on your phone.

"Passbook is convenient but it's not a full-fledged wallet," Ramon T. Llamas, senior research analyst for mobile devices technology and trends at IDC, told MacNewsWorld.

"You're storing your information and you have a
QR code that can be scanned; that is certainly helpful," he explained. "But because this doesn't have an NFC chip inside, I didn't see it as being a full fledged mobile wallet."

NFC Absence Won't Hurt Apple

A major cheerleader for NFC technology has been Google, with its Google Wallet, which is installed on NFC-enabled Galaxy Nexus phones made by Samsung. The South Korean company's Galaxy S III handset also has NFC, as well as recent phones from Nokia and Motorola.

Apple's been mum on why NFC isn't in the new iPhone. It did not respond to our request to comment for this story. However, avoiding NFC in this iteration of its best-selling handset won't hurt it, according to Llamas.

"The market is young and more than half the stores don't support NFC at the point of sale," he explained. "So not being able to use the new iPhone as a mobile wallet won't penalize Apple."

Not only is the market young, but it's still very much unsettled, especially when observed with Apple's global perspective, according to Michael Morgan, a mobile devices analyst for ABI Research.

"From a worldwide perspective, the NFC mobile wallet ecosystem is highly fragmented and unsure about how it's going to end up defaulting," said Morgan.

Let Microsoft Do The Dirty Work

Morgan added that Apple may have seen the increased security requirements of NFC as detracting from the user experience of the iPhone. "I always find security seems to be an enemy of usability," he observed. "If something is perfectly secure, you probably can't use it."

While Apple has a reputation for innovation, sometimes it picks a more traveled road for its solutions, asserted Roger L. Kay, president of
Endpoint Technologies Associates. "Apple will often choose a simpler, more widespread technology than the betamax of the moment," he told MacNewsWorld.

That simple approach may fit the bill at this time, noted Ross Rubin, principal analyst at
Reticle Research, a consumer technology advisory firm. "Apple has said that Passbook sufficiently meets the needs of what consumers are looking for in a wallet," he told MacNewsWorld. "In many instances that will be true."

Because of the vagaries of NFC, Apple may be content in letting others experiment with the technology, Kay reasoned. "Passbook works for now," he said. "It casts a skeptical eye at the NFC market and says to players like Microsoft, 'You prove it. And if you do, we'll come in.'"